The Next Financial Crisis

The Financial Crisis Of 2015

The financial crisis of 2008 shook politicians, bankers, regulators, commentators and ordinary citizens out of the complacency created by the 25 year “great moderation”. Yet, for all the rhetoric around a new financial order, and all the improvements made, many of the old risks remain. The basic regulatory framework – of bank debtor guarantees and regulatory bank capital and liquidity minima (that is, of risk subsidies and compensatory risk taxes) – has been maintained with tweaked parameters. And, within this system, bank shareholders, bondholders and executives still have incentives that might herd them towards excessive risk taking. The crisis scenario described in this report can be seen as a continuation, after a breathing space provided by taxpayer-funded bailouts, of the 2008 crisis.

Of course, events will not unfold precisely as described in our scenario. But the observable fragilities in the global economy suggest that it would take little to create a renewed crisis. Our purpose is not to promote defeatism, but a sense of urgency. As argued above, regulators should put less effort into holding the lid down on banks and more into addressing the financial market distortions that fuel the pressure under the lid. And bankers should use scenario analysis to take an honest look at the risks to which their strategies expose them and their institutions’ ability to manage them.

We called our story an “avoidable history”. Unfortunately, future crises are not avoidable, but being a victim of the next one is.

Via Oliver Wyman

 Nothing New 

Bubble bursting, published by John Childs, New York and Washington DC, c.1840,

The Financial Crisis Of 2015 - A Non-Fictional Fiction

John Banks was woken by his phone at 3am on Sunday 26th April 2015. John worked for Garland Brothers, a formerly British bank that had relocated its headquarters to Singapore in late 2011 as a result of what Garland’s CEO had described as “irreconcilable differences” between the bank and the UK regulators. The last three years had been the most exciting of John’s life. Having led the bank’s aggressive expansion into emerging markets wholesale activities, he had recently been promoted to its executive committee.

John picked up the phone. It was the bank’s legal counsel, Peter Thompson, calling. He had dramatic news. Garland Brothers, one of the world’s oldest banks, would tomorrow declare bankruptcy. As he lay there in his spacious air-conditioned bedroom, unable to return to sleep, John tried to reconstruct the events of the last four years. 

Planting the seeds of failure

At the beginning of 2011, the global economy was showing signs of finding a "new normal". With the exception of a few smaller troubled economies, the world had returned to positive growth, and Western stock markets had returned to their levels prior to the Lehman crisis. Banks had started lending to each other again, becoming gradually less reliant on central bank funding. Insurers had rebuilt their capital positions back to pre-crisis levels. Ireland had joined Greece in the list of peripheral Euro countries requiring a bailout, but there was a general sense that the broader contagion problems had been contained.

New bank (Basel III) and insurance (Solvency II, in Europe) regulatory regimes had been introduced and were designed to avoid a repeat of the sub-prime crisis. Banks were phasing in the new tougher controls around capital, liquidity and leverage, albeit over a relatively relaxed timeframe. The Basel Committee's impact study had estimated that the largest banks needed to raise a total of €577 BN to meet the new standards, and several banks came to market in 2011 with multi-billion Euro rights issues.

Beneath this relatively calm surface, however, trouble was brewing. Stakeholders in financial services firms wanted lower risk, but shareholders were still demanding high returns. Executives felt their institutions were holding more capital than they needed, and they were struggling to find investment opportunities that satisfied their shareholders' return requirements. Despite attempts by central banks to inject liquidity into the system, loan growth in Western economies had ground to a halt as consumers continued to deleverage and companies remained reluctant to invest, uncertain of the future interest rate, tax and regulatory environment.

The ability of banks to generate fee income by re-packaging credit books had been eliminated by punitive new securitisation rules. New consumer protection laws prevented the sale of complex derivatives to many customers. Proprietary trading by banks had been outlawed in many jurisdictions.

The talented and ambitious employees of Western banks found themselves under-utilised in an industry that was starting to resemble a utility. They needed to find new outlets for their creativity and drive.

 

Disappearing into the shadows

Talent began shifting into the shadow banking sector. During the low interest rate environment of 2011, investors were desperate for alternative investments with additional yield. Assets under management in the shadow banking sector grew rapidly during 2011. Asset managers were promising "inflation busting" returns but many of the strategies were based on the short-term growth prospects of the hottest markets and often employed leverage to maximise gains.

New types of specialist loan funds disintermediated the highly regulated banking sector by matching borrowers and investors directly. These funds tapped into the long-term liquidity pools of pension funds and insurance companies. Their pitch books described such investors as "advantaged holders of illiquid credit". Lacking their own distribution channels, these funds relied on outsourced origination, either through banks or networks of "hungry" agents. Credit discipline was poor. Even at this early stage, the pattern was familiar, but regulators did not intervene. Because the asset flows were global and did not have banks at their centre, no single regulatory body felt responsible.

Go East (or South) young man!

Other restless Western banks and bankers moved, not into the shadows, but into the heat of emerging markets. In contrast to the anti-banking sentiment growing in the West, many emerging markets jurisdictions were still viewed as "banker friendly". At the same time, growth opportunities in emerging markets had already encouraged some banks to base their growth strategies on these markets. In early 2011, several small international banks closed down their Western wholesale subsidiaries and re-located them to Singapore or Hong Kong. Garland Brothers was the first British bank to make the move, giving up its UK base when it decided to relocate its headquarters to Singapore in late 2011.

Western banks tackled the emerging markets in different ways. Those that had already established deposit and customer bases in emerging markets continued to grow organically, employing a well-tested and consistent set of risk standards across markets regardless of regulatory inconsistencies. Other Western players, such as Garland Brothers, that were struggling to find an edge, employed unorthodox techniques to build a presence in the faster growing markets. Some began to build large wholesale divisions in Asia and set up complex legal entity structures to take advantage of inconsistencies across regulatory regimes.

Sales of complex derivatives were once again producing a large proportion of many banks' income. Lacking an emerging markets deposit franchise, many of these Western banks started to fund their emerging markets lending activities via the wholesale markets or by tapping domestic funding sources in the West. Problems in the Eurozone meant that many European banks were paying 200-300bps above LIBOR for funding back home, and there were few opportunities in Europe to lend out such funds profitably. European banks found that lending to emerging markets banks and governments was one of the few ways of generating a positive margin over their rising cost of funds. This was part of a general trend among Western banks of moving down the credit spectrum to pick up yield.

Bubble creation

Based on favourable demographic trends and continued liberalisation, the growth story for emerging markets was accepted by almost everyone. However, much of the economic activity in these markets was buoyed by cheap money being pumped into the system by Western central banks. Commodities prices had acted as a sponge to soak up the excess global money supply, and commodities-rich emerging economies such as Brazil and Russia were the main beneficiaries.

High commodities prices created strong incentives for these emerging economies to launch expensive development projects to dig more commodities out of the ground, creating a massive oversupply of commodities relative to the demand coming from the real economy. In the same way that over-valued property prices in the US had allowed people to go on debt-fuelled spending sprees, the governments of commodities-rich economies started spending beyond their means They fell into the familiar trap of borrowing from foreign investors to finance huge development projects justified by unrealistic valuations. Western banks built up large and concentrated loan exposures in these new and exciting growth markets.

The banking M&A market was turned on its head. Banks pursuing high growth strategies, particularly those focussed on lending to the booming commodities-rich economies, started to attract high market valuations and shareholder praise. In the second half of 2012 some of these banks made successful bids for some of the leading European players that had been cut down to a digestible size by the new anti- "too big to fail" regulations. The market was, once again, rewarding the riskiest strategies. Stakeholders and commentators began pressing risk-averse banks to mimic their bolder rivals.

The narrative driving the global commodities bubble assumed a continuation of the increasing demand from China, which had become the largest commodities importer in the world. Any rumours of a slowing Chinese economy sent tremors through global markets. Much now depended on continued demand growth in China and continued appreciation of commodities prices.

The bubble bursts

Western central banks pumping cheap money into the financial system was seen by many as having the dual purposes of kick-starting Western economies and pressing China to appreciate its currency. Strict capital controls initially enabled the Chinese authorities to resist pressure on their currency. Yet the dramatic rises in commodities prices resulting from loose Western monetary policies eventually caused rampant inflation in China. China was forced to raise interest rates and appreciate its currency to bring inflation under control. The Western central banks had been granted their wish of an appreciating Chinese currency but with the unwanted side effect of a slowing Chinese economy and the reduction in global demand that came with it.

Once the Chinese economy began to slow, investors quickly realised that the demand for commodities was unsustainable. Combined with the massive oversupply that had built up during the boom, this led to a collapse of commodities prices. Having borrowed to finance expensive development projects, the commodities-rich countries in Latin America and Africa and some of the world's leading mining companies were suddenly the focus of a new debt crisis. In the same way that the sub-prime crisis led to a plethora of half-completed real estate development projects in the US, Ireland and Spain, the commodities crisis of 2013 left many expensive commodity exploration projects unfinished.

Western banks and insurers did not escape the consequences of the commodities crisis. Some, such as the Spanish banks, had built up direct exposure by financing Latin American development projects. Others, such as US insurers, had amassed indirect exposures through investments in infrastructure funds and bank debt. Inflation pressure in the US and UK during the commodities boom had forced the Bank of England and Fed to push through a series of interest rate hikes that forced many Western debtors that had been holding on since the sub- prime crisis, to finally to default on their debts. With growth in both developed and emerging markets suppressed, the world once again fell into recession.

Judgement day for sovereigns

The final phase of the crisis saw the US, UK and European debt mountains emerge as the ultimate source of global systemic risk. Long-term sovereign yields had been gradually rising during the last few years, but analysts had assumed that this was because of increasing inflationary expectations. With the advent of the new commodities lending crisis, rising sovereign yields were suddenly being attributed to the deteriorating solvency of the sovereigns. Their high debts, combined with increasing refinancing costs, made it apparent that the debt burden of many developed world sovereigns was unserviceable. It was judgement day for sovereigns.

Those sovereigns that were highly indebted and needed to roll over large amounts of short-term debt were forced to either restructure their debts or accept bailout money from other healthier sovereigns. This period, which spanned 2013 to 2015, was the single biggest rebalancing of economic and political power since World War II.

The final irony in the tale was that the large sovereign exposures that the banking system had built up as a result of the new liquidity buffer requirements left the banking system, once again, sitting on the edge of the abyss.

Our unemployed protagonist

As John ran through these facts it became clear to him that not enough had been learnt from the sub-prime crisis. Bankers had gone chasing the next rainbow only to find another pot of toxic waste rather than a pot of gold. The new wave of regulations had proved ineffective at stopping another bubble from forming. John was struggling to understand what he should have done differently. Heads would certainly roll. But who was really to blame this time around?

See the Full report Analysis How plausible is the 2015 crisis scenario?

SPAIN SOS

"Sauve Qui Peut !"

Summarizing What Spain Just Announced, And What Was Left Unsaid (Hint: Cash)

Spain on its own cannot handle the debt crisis and markets expect Spain will need a bailout. Politicians are hesitating because this is a big country and no one wants to be associated with a bailout. Another reason is loss of sovereignty. So, the most likely scenario, in our view, is that Spain will have to request further financing of EUR 30-50bn, even if the unused bank-bailout funds can be transferred. And despite having some time on its hands, we think Spain will be forced to request help in October.

The 2013 budget does indeed focus on spending cuts (worth potnetially 0.75% of GDP next year) which is providing a headline of epic austerity, but the use of the social-security fund to buy time, the overly optimistic growth forecasts for 2013, and the lack of detail on structural reform was disappointing (or should have been to anyone who actually listened). 

It seems Spain has effectively agreed the terms for financial aid, without agreeing the terms of financial aid and while their hope is that the leftovers from the banking bailout fund will ease some pain; it seems the regional angst (Catalonia for example) and the fact that, as we noted a month ago, Spain only has enough ash to see it through to October, leave them likely to need EUR30-50bn minimum in October (as we said a month ago).

Spain: Hostage to Catalonia (among other things) -BNP-

• Spain is edging closer to asking for financial aid, but it’s a long, slow process. We think Spain will find it very difficult to hold out longer than October, though a transfer from the social-security stabilisation fund could give it some room to manoeuvre.

• The Eurogroup should take a broadly positive view on the new measures, assuming it is given more detail, allowing the Spanish government to spin any bailout as a reward for eform. This could remove part of the stigma associated with it, at least domestically.

• The country’s regional elections on 21 October could be the last obstacle to an aid request. Another glitch, however, is Catalonia’s call for an early election in November and a potential referendum on regional autonomy.

• Any unused funds from the bank bailout may be used to lower the final cost of a sovereign bailout, something that should appease Germany. But we don’t think these funds will be enough and expect Spain to request additional funding.

After today’s presentation of the 2013 budget, a new swathe of structural reforms and tomorrow’s publication of the bottom-up review of the Spanish banks, we should have a bit more clarity on the potential timeline and scope of any Spanish aid request.

The next Ecofin meeting on 8 October will assess the reforms and the budget, as well as the details of the bank reforms to be undertaken as soon the first tranches of the bank bailout funds are released. We think the assessment should be positive, assuming more details are provided, as both the reforms and budget have been drafted with the input of the IMF and the European Commission. Both IMF chief Christine Lagarde and the European Commission have confirmed that teams from their institutions have been in Madrid in recent weeks, helping to compile the 2013 budget and to lay out the structural changes that are needed in the Spanish economy.

The Spanish budget for 2013 will focus on spending cuts in a bid to pull the country out of the current crisis, the Spanish government said today. At the same time, tax revenues are likely to increase by 3.8% next year, while tax income in 2012 will be higher than budgeted. Central government spending will increase by 5.6% as a result of the increase in spending on social security and debt-servicing costs. The only areas to see higher spending next year will be pensions and third-level education.

The government estimates that the spending cuts could be worth EUR 7.5bn, or just over 0.75% of GDP in 2013, with revenue changes amounting to almost 0.6% of GDP. There will be an 8.9% cut in ministerial spending across the board, a 20% tax on lottery winnings that is expected to raise EUR 824mn) and a freeze on public-sector pay for the third year in a row, the government said. It also plans to do away with mortgage rebates, do away with certain corporate tax exemptions and transfer EUR 3bn from the social-security stabilisation fund to pay for pensions and social benefits, or “short-term liabilities”, as the vice premier termed it. The government already transferred EUR4.75bn in August from the off-budget stabilisation fund, which had around EUR 66bn in its coffers at the end of 2011.

A new budgetary authority will be created to keep Spain on the fiscal straight and narrow. The framework for the new body will be in line with recommendations by the European Commission and the IMF.

The government left unchanged its budget-deficit forecasts for this year and next at 6.3% of GDP and 4.5% of GDP, respectively. Surprisingly, it also left its growth forecast for 2013 unchanged at -0.5%, despite announcing new tax increases, which are likely to further damp already weak internal demand. We think that both deficit targets are optimistic and forecast a deficit-to-GDP ratio of 7.0% of GDP for this year and around 5% for 2013. We have a growth forecast of -1.8% for 2013.

It plans more than 40 economic reforms over the next six months and will present reforms to the pension system by year end. Those reforms will include an increase in the retirement age, a measure Spanish Prime Minister Mariano Rajoy had been resisting until recently.

On the structural-reform front, there was some disappointment. Economics Minister Luis de Guindos said the government would take on board all of the EU’s recommendations, but he was somewhat short on detail. Mr de Guindos said the government would reduce the incentives for collective wage bargaining, but didn’t specify how. Incentives to take early retirement will be reduced, he said, though the details will have to be agreed with the social partners.

So, Spain has, in effect, already agreed to the conditions for financial aid, without agreeing to the conditions for financial aid. The presentation of the reforms before a begging trip to Brussels should make the bailout an easier sell domestically. ESM and ECB support will be seen more as a reward for government efforts and less as a punishment for fiscal and structural laxity. However, the Spanish government still thinks it should wait before requesting help. Question is, how long?

The Bank of Spain says the Spanish Treasury deposited EUR 26bn with Spanish banks at the end of July. This can be considered a rough estimate of the liquidity available to the Spanish state and the best point from which to examine the current capacity of Spanish coffers.

Over the last five years, the Spanish primary deficit in the last four months of the year has been around 38% of the deficit for the year as a whole. If we assume that this year’s budget-deficit target of 4.5% of GDP (EUR 45bn) is to be met, and taking into account the tax increases to come into effect on 1 September (worth EUR 4.9bn, according to the government’s estimates) and the cuts in civil-service Christmas pay (EUR 5.2bn), this leaves a total EUR 20bn of to be financed through the end of 2012 (or close to EUR 5bn per month). However, the distribution of this financing gap is not homogeneous. 

September and October usually see an average monthly surplus of around 0.4% of GDP (close to EUR 4bn), while in August and in the last months of the year, the central government usually posts monthly deficits. However, as we have seen since the beginning of the year, the central government has been transferring funds every month to the autonomous regions, so these surpluses may be lower this year.

So, if Spain refinances its bills in the market, based on the pattern of last year’s deficit, it may only have enough cash to cover its deficit and its bond redemptions through the end of October. It is a very close call, however, and October could well be the last financially tricky month in 2012. November and December are usually months in which the budget balance averages a deficit of 0.6% of GDP. Spain could try to muddle through after October, either by increasing the size of its auctions, increasing bill issuance, or just running arrears.

If this is the case, however, Spain will be left with almost no cash and will be pretty much forced to live from day to day, in fiscal terms. At that point, Spain will be forced to request help. And Mr Rajoy must have realised this, as yesterday, he said in New York that Spain would “surely ask for support” if yields remained too high for too long. Still, the EUR 3bn transfer from the social security fund could buy it a little time, if it happens this year.

So, not only is the fiscal clock ticking for Spain, but there are other factors that could influence the timing of a request.

France and Italy are among those countries with the biggest interest in Spain asking for aid before the EU summit on 18-19 October. Germany, in contrast, would prefer for domestic political reasons to postpone any Spanish bailout, especially as Spain is only on the verge of receiving the initial tranches of its bank recapitalisation funds. But even Germany’s resistance seems to be faltering. Over the past week, both German Finance Minister Wolfgang Schaeuble and Michael Meister, chief whip of Chancellor Angela Merkel’s CDU party, said that Spain needed to decide quickly whether it needed support or not.



Mr Rajoy seems more inclined to wait until after the 21 October regional elections in Galicia and the Basque country. The latter is not an issue, as the prime minister’s Partido Popular has little chance of winning there anyway. But Galicia is Mr Rajoy’s home region and, according to the latest polls, the PP could lose control of it. An aid request before that vote would be a bitter blow to the campaign and would be seen as a personal defeat for Mr Rajoy.

Recent comments by members of his party usually more supportive of his positions suggest that Mr Rajoy may be becoming increasingly isolated in his position, though. So, Spain could end up asking for support before the elections on 21 October, but after the Ecofin meeting on 8 October.

And to top things off, developments this week in the region of Catalonia could increase the urgency of a Spanish request, as its political manoeuvrings could amplify the already significant doubts the market has about Spain. Early this week, the government of Catalonia called an early election for 25 November in a bid to underpin its defiant stance against the Spanish central government. And this after the region asked for a handout of EUR 5bn from the central coffers. Now, it seems local politicians are touting a possible referendum on self-determination as an electoral carrot. But even if the calls for Catalonian independence can be taken with a pinch of salt, the turbulence stemming from all of the regions’ unwillingness to toe the fiscal line can only make the central government’s job more difficult and the markets more sceptical.

Today’s announcement of the creation of a national fiscal council to wrestle control of regional finances is a positive step, but we can’t help but wonder what power it will have when the regions are striving for more and more autonomy. Moreover, if the government of Catalonia is successful in its strategy and gets its loan on easier terms, why shouldn’t more regions do the same? As if on cue, today, Castille la Mancha requested EUR 800mn in aid from the central government, making it the fifth Spanish region to ask for help from Madrid.

The question of the amount of any Spanish bailout, meanwhile, is also something that has yet to be addressed. The EU has already set aside EUR 100bn for a programme to recapitalise the Spanish banks and, according to the latest reports, their capital needs may be just EUR 60bn. The banks could potentially find EUR20bn of that either in the market or by selling assets to the country’s future bad bank, leaving between EUR 40bn and EUR 60bn to play with.

One possibility touted by the media is that Spain could transfer its unused bank bailout money to the government. This would keep Germany happy, as the transfer could be made courtesy of a tweak to the bank-bailout MoU, avoiding the need for German parliamentary approval. Another possibility doing the rounds is that Spain might try to avail of the ESM’s bond-guarantee scheme, which would cover investors for the first 25% of any losses on Spanish government bonds.

However, aside from any potential legal objections, for ECB intervention to occur, a country must either be under a “full” austerity programme, or have requested a precautionary one. So, even if Spain were to go down this route and the other European countries were to agree, a new MoU would have to be signed, with all of the conditions that go with it. And this might not be enough. Spain’s funding needs for the next 12 months are close to EUR 180bn. If an ESM programme were to fund only 50% of Spanish issuance, this would mean it would need a capacity of close to EUR 90bn, more than the EUR 40-60bn that might be left over from the bank bailout. And the ESM bond-guarantee option also seems unlikely, in our view, as the ECB would require a greater commitment from the government before starting to buy its bonds.

The (Solar) Systemic Eurosystem Infographic

Here's everything worth knowing about the euro in one big infographic

The distance for each "planet" from Black Holes-Depression to the Sun -Hyperinflation-

Sources www.goldmoney.com

What are bubbles

Bubble Formation And Bubble Bursting: 

A Flowchart So Simple Even An Economist Can Get It

Since it is now quite clear that despite calling for even endless-er QE, the uberdovish Chicago Fed, and by implication the entire FOMC, is still clueless about the two most critical processes of modern fiat-based economics, namely bubble formation, and its counterpart, bubble bursting, we decided to give them a helping hand, and to explain just how these two fundamental events occur, with flow charts so simple, even an Economics PhD can get it.

Bubble Formation: start at the bottom left...

Bubble Bursting: ...and end with a 'debt crisis' and a 'rush for the exits' 

Rinse and Repeat - Simple. 

Not convinced yet ?... Look at the following 

FED PAPER

"We still do not have a good definition of an asset bubble; and we still do not know how to identify them, what causes them to grow or burst, or what their welfare implications are. More research needs to be conducted to address these questions".

And this coming from the same Fed, whose president concurrently said more QE is needed, i.e., even bigger bubbles need to be blow.

Is there, thus, any wonder why nobody has any faith left in the US economy, and why everyone is convinced that the next epic market collapse, when the next bubble bursts, may very well be the final (hopefully this should go some way to explaining the age old question: why are there $2 trillion in cash on the sidelines and why do corporations have zero faith in the economy, and the market, and are unwilling to invest any cash in either capex or hiring).

Essentially, Evans, and the Chicago Fed, are explicitly stating that the Fed's actions instead of making the situation far more dire, are improving it.

So far so good. 

But where it gets scary is that just today, the same Fed, which is so sure about the affirmative impact of its actions, asks "what are asset price bubbles" (answer: always and without fail the direct effect of ultra loose monetary policy combined with unleashed animal spirits, but what do we know: we have no Econ PhD), confirming it has no clue what the adverse consequences of monetary policy are. And this is the Fed - one which does not grasp the very simple nature of asset bubbles in a fiat world - that is saying Bernanke should print until he literally runs out of toner cartridge. Why whatever can possibly go wrong?

It gets better.

The paper acknowledges that "For at least the past 25 years, the Federal Reserve has tended to follow an approach to asset bubble management in which there is little or no restrictive monetary policy action during the bubble’s formation and growth, but there is a prompt easing in the form of quick reductions in market interest rates once the bubble bursts." In other words the Fed is perfectly happy to have its policies result in something known as an asset bubble, which the same Fed admits it can't quantify, but not intervene until the entire economy is on the verge of collapse and then to literally throw the kitchen sink at the problem, an epic misconception which is at the basis of Bernanke's statement that he can cure inflation "in 15 minutes." We also learn something rather amusing about this Fed policy, subsequently known, appropriately enough as the Jackson Hole Consensus: "The intellectual foundation for this approach was the seminal piece by Ben Bernanke and Mark Gertler (originally published in 1999)." In other words, years before his infamous 'helicopter" paper, Bernanke was already espousing the free blowing of bubbles, consequences be damned.

Here is where it gets fun: the paper next admits: "The Jackson Hole Consensus appeared to work well until September 2008, when the financial system came close to a complete meltdown." Without say so directly, the Chicago Fed, which recall does not know what asset price bubbles are, implicitly admitted that it was the Chairman's own ideology which led to the epic crash that nearly wiped out the financial markets of the "developed" world, and has since pushed the world into the greater depression ever seen, one only offset so far courtesy of the ever greater risk, expected to hit $5 trillion by the end of 2014, that the Fed has onboarded on its own balance sheet. In essence the Fed has become the biohazard repository of only resort. It is this biohazard that is somehow expected to find willing buyers when the time to crash the market, i.e., tighten comes.

There are many more pearl of wisdom in the paper, some of which are the following:

• History shows us that asset bubbles occur and that their bursting can be detrimental to the macroeconomy.
• Evidence suggests that some bubbles can have a significant adverse impact on the macroeconomy when they burst.
• [There is ]empirical evidence supporting the conjecture that stock market overvaluation—i.e., a bubble—can lead to overinvestment in the bubble sector.
• Excess liquidity encourages lenders to be overaggressive and to underprice risk in hopes that proceeds from loan growth will more than offset any later losses stemming from the aggressive behavior.

Global Central Bank : ECB

La BCE : quelle est cette recette miracle ?

En Europe, on s'active aussi

Même si les deux événements ne sont pas entièrement liés, la décision de la Fed intervient une semaine après le coup de bazooka de la BCE (Banque centrale européenne) au sein de la zone euro. Avec son nouveau programme de rachat de dette des Etats de la zone euro, l'équipe de Mario Draghi s'est d'ores et déjà félicitée des "effets positifs", avec un retour à la confiance des investisseurs. Le MES (Mécanisme européen de stabilité), devrait par ailleurs entrer en vigueur fin octobre, une fois que les deux premières tranches de son capital auront été versées.

Dans le même, la BCE et le FMI ont démenti l'existence de négociations avec l'Espagne sur un plan d'aide d'un montant de 300 milliards d'euros, tel que rapporté par un journal néerlandais.  condition indispensable à mise en place d'un plan d'aide.

La Grèce pourrait quant à elle se voir offrir un délai supplémentaire pour mettre en place ses réformes. Plusieurs ministres des Finances de la zone euro réunis vendredi à Chypre ont donné des raisons d'espérer à Athènes, qui a lancé cet été une offensive de charme pour obtenir un peu de souplesse dans les échéances d'assainissement de ses finances. Ce geste ne devrait toutefois pas être accompagné d'argent supplémentaire.

Les messages distillés par Mario Draghi durant tout l'été auront fini par se concrétiser. On craignait que ses grandes déclarations ne soient pas suivies d'effets. Cela n'a pas été le cas. Le président de la Banque centrale européenne a annoncé ce jeudi 6 septembre qu'il allait reprendre "le programme de rachat de dette publique", afin de soulager les États asphyxiés par des marchés en manque de confiance. Et, à la différence des précédents, la BCE renoncera cette fois à son statut de "créancier privilégié". Vous n'y comprenez pas grand-chose? Il faut avouer qu'il y a de quoi...

Deux signes montrent en tout cas que le programme est d'ampleur. Le premier, c'est la réaction des marchés qui applaudissent des deux mains alors qu'ils s'attendaient à une action de ce type. A 16h30, le CAC40 gagnait 3,06%, le Dow Jones 1,81%, Madrid bondissait de 4,91% et les valeurs bancaires s'envolaient de plus de 5% (5.47% pour BNP Paribas, 8.44% pour Crédit Agricole...). Le second ? C'est que l'Allemagne a voté contre cette décision de la BCE. Et ça, c'est plutôt bon signe...

Quel est le fonctionnement de ce mécanisme ? À quoi sert-il vraiment ? Pourquoi son utilisation marque un tournant ? 

Mais c'est quoi une obligation d'Etat ?

Avant tout, il faut comprendre en quoi consiste "la dette publique d'un Etat". Pour investir lorsqu'ils n'ont pas suffisamment d'argent récoltés par les impôts, les pays empruntent auprès de sociétés financières (banques, fonds de pension, assureurs, etc.). Ces dernières revendent ensuite au plus offrant ces sortes de reconnaissance de dette, appelées "obligations".

Ces obligations, ou titres obligataires, sont remboursés par les Etats à échéances précises (mois, années...) sur une période définie, allant de un à dix ans. D'ordinaire, l'État ayant la réputation d'être le "meilleur payeur", le client contractant une obligation d'État est assuré d'être remboursé dans les temps. Et plus il est rassuré de la bonne marche de la transaction, plus les intérêts sont faibles. En effet, c'est comme au poker: plus le risque de pertes est faible, plus les intérêts sont réduits. Sur les marchés c'est pareil.

Mais lorsqu'un pays est proche de la faillite, ou tout du moins quand les investisseurs craignent qu'il ne puisse plus honorer ses remboursements, les taux montent. L'Etat doit alors emprunter très cher pour financer son train de vie (retraites, sécurité sociale, éducation...), au risque d'être asphyxié.

C'est ce qui c'est passé pour la Grèce et ce qui menaçait très fortement l'Espagne et l'Italie. Pour éviter la faillite des deux derniers, sans leur imposer un plan d'austérité intenable à celui d'Athènes, la BCE a choisi d'intervenir.

Quelle tête a un "programme de rachat" de la BCE ?

Elle va prendre la place des investisseurs craintifs. Sans pour autant faire des prêts gratuits, les taux seront alors fixés à un niveau acceptable, éliminant alors la spéculation des marchés. Le président de la BCE a déclaré que son institution achètera des obligations d'État allant de un à trois ans, "sans fixer de limite quantitative". "Trois ans, c'est la maturité la plus efficace pour atteindre les objectifs", a-t-il dit. Pourquoi ne pas prêter directement aux Etats et passer par un obscur "marché secondaire"? Tout simplement parce que la BCE n'en a pas le droit! Ses statuts lui interdisent d'injecter de l'argent dans les pays.

Selon les maigres détails fournis par Mario Draghi, ces achats se feront "sous strictes conditions de demande d'aide aux fonds de secours européens par les pays qui souhaiteront en bénéficier". Autrement dit, d'accord pour dépanner, mais il faut demander poliment. Quelles strictes conditions? Mystère pour l'instant, mais la BCE a indiqué mettre en place un système plus transparent que son programme précédent, lancé dans l'urgence en mai 2010 à l'époque de la première crise de la dette grecque.

Et la différence par rapport aux précédents programmes?

La BCE avait déjà par le passé, eu recours de manière exceptionnelle à un programme de rachat. Les marchés avaient été rassurés quelques temps avant de replonger dans la sinistrose. Pourquoi en serait-il différemment cette fois-ci? Rien n'est acquis, bien sûr. Mais il y a un petit mot prononcé par Mario Draghi qui pourrait bien faire toute la différence: "créancier privilégié".

Il s'agit tout simplement d'un statut particulier que s'octroyait jusqu'à présent la BCE: en cas de faillite du pays, ou de renégociation de la dette (comme cela a été le cas avec la Grèce), la BCE était remboursée en premier. Avant tout les établissements privés. Inutile de préciser que cela douchait pas mal les ardeurs des banques pour prêter au pays... Un peu comme lorsqu'une entreprise fait faillite: les impôts se servent d'abord sur la trésorerie restante et il ne reste bien souvent aux fournisseurs que les yeux pour pleurer.

Cette fois, Mario Draghi a annoncé qu'il renonçait à ce statut. Privé et public seront sur un même pied d'égalité en cas de difficulté du pays. Les prêteurs privés ont donc plus de chances de rentrer un peu dans leurs frais. Et sont donc plus enclins à prêter...

Reste à savoir si l'instrument sera efficace sur le moyen terme.

Y-a-t-il des risques ?

C'est l'inflation, c'est à dire le phénomène macroéconomique qui fait perdre à une monnaie sa valeur. Plus il y a d'argent en circulation, moins elle vaut cher... La mission principale de la BCE est justement de maîtriser le niveau d'inflation dans la zone euro, en veillant à maintenir la stabilité des prix.

Car la BCE ne possède pas de coffres remplis d'argent liquide, c'est bien le problème du mécanisme qu'elle met en place. Pour racheter de la dette des pays en difficultés, elle va devoir créer de la monnaie supplémentaire. "Faire marcher la planche à billets" reste l'expression consacrée dans le jargon économique

L'Allemagne s'est vigoureusement opposée à ce programme pour cette raison. Pour le président de la Bundesbank, la banque centrale allemande, ce type de politique "peut rendre accro, comme une drogue".

George Soros à l'Allemagne: 
"Prenez en main la zone euro ou quittez-la"

Global Central Bank : FED

La Fed ne joue-t-elle pas avec le feu ?

Les annonces du président de la FED ont de quoi intriguer. Que se cache-t-il derrière les grands moyens entrepris par la Fed ? L'institution a pris le risque la veille d'ouvrir une nouvelle porte sur l'inconnu en décidant de créer (encore) de la monnaie en masse pour tenter d'accélérer la baisse du chômage. Avec cela, la Réserve fédérale des Etats-Unis va plus loin qu'elle que jamais.

En décidant de racheter des titres toxiques adossés à des créances immobilières, elle revient à des mesures prises à l'automne 2008, quand l'économie américaine était en chute libre. Mais quand il y a quatre ans elle s'engageait à racheter un montant fixe de titres, elle sort aujourd'hui l'artillerie lourde. La Fed prévoit cette fois-ci d'en racheter pour 40 milliards de dollars par mois jusqu'à ce qu'elle observe une "amélioration soutenue" du marché du travail, et d'augmenter la dose tant que ce résultat ne sera pas atteint.

Ces nouveaux rachats viennent après deux phases d'"assouplissement quantitatif", qui l'ont vu injecter dans le circuit financier 2300 milliards de dollars créés à partir de rien, et risquent donc de compliquer encore la normalisation future, repoussée à un horizon toujours plus lointain, de la politique monétaire américaine.

Pour les économistes du cabinet RDQ Economics, le président de la Fed "emmène la politique monétaire américaine toujours plus loin en terre inexplorée". Michael Gapen, de Barclays Capital, qualifie d'"audacieux" le nouveau cap de la banque centrale. Par le passé, note-t-il, les investisseurs "avaient une connaissance assez concrète du montant total des achats (de la Fed) et du délai dans lequel ces rachats seraient réalisés. (...) Le nouveau programme de rachat, à durée indéterminée, leur fournit moins de renseignements à l'avance".

Fuite en avant ?

Par bien des aspects, le nouveau cap de la Réserve fédérale s'apparente à une fuite en avant. Les économistes de la maison de courtage Nomura, estiment que compte tenu de la conjoncture, la Fed n'aura pas de sitôt les 3% de croissance du PIB sur plusieurs trimestres nécessaires à la "baisse soutenue du chômage" qu'elle espère.

Par conséquent, la banque centrale devra presque inéluctablement augmenter ses rachats sur les marchés, probablement dès le mois de janvier.

La Fed a également adopté jeudi une position de principe peu conforme à l'orthodoxie des banques centrales en s'engageant à maintenir une politique monétaire ultra-accommodante "pendant un temps considérable", même "après le renforcement de la reprise". Bernanke a expliqué à demi-mot que la Fed était comme contrainte de passer à l'offensive dans la mesure où elle est actuellement la seule à pouvoir agir, le Congrès étant totalement bloqué par l'incapacité des démocrates et des républicains à s'entendre sur les questions budgétaires et économiques.

A tout prix - coûte que coûte !

Ce qui frappe dans le texte du communiqué, c’est l’insistance que la Fed met sur son « dual » mandat, son double mandat. Ce n’est pas seulement l’emploi, c’est maintenant l’emploi maximum qui constitue son objectif. Ceci sous-entend, un peu à la manière de Draghi, que l’on fera coûte que coûte tout ce qu’il faut faire pour réduire le chômage.

L’impression qui se dégage est que la Fed appuie sur l’accélérateur et franchit une nouvelle étape. Il ne s’agit plus de soutenir l’activité, il ne s’agit plus de palier d’éventuelles défaillances, il s’agit d’emballer la machine économique.

Nous ferons deux remarques.

La première est l’accent mis, cette fois, sur l’achat des titres hypothécaires (MBS) et non pas sur les valeurs du Trésor. Ceci correspond à l’analyse que nous faisons depuis quelques temps, à savoir que le plancher du secteur immobilier n’est pas passé inaperçu chez les régulateurs. Peu importe que ce plancher soit réel ou artificiel, les chiffres publiés sont là : le housing se stabilise. Qu’est-ce que cela veut dire ? Cela veut dire que Bernanke et la Fed ont maintenant une deuxième corde à leur arc. Ils ont recherché l’effet de richesse sur le marché des actions, maintenant que le logement s’améliore, ils peuvent essayer de créer un effet de richesse complémentaire en restimulant le logement. Vous comprenez mieux notre titre, à savoir que le QE sera un cru « maison ».

Sur le papier, l’analyse de la Fed semble tenir la route. En effet, si on a touché un plancher sur le logement et si les prix recommencent à monter, il ne doit pas être bien difficile d’imprimer une tendance haussière qui influencera les médias, les acheteurs et, bien sûr, les consommateurs.

Nous pensons que l’accent mis sur les achats de titres hypothécaires va dans cette direction. Une analyse plus critique montre les limites du raisonnement de la Fed. D’une part, la stabilisation du prix des maisons et du marché est artificielle, ce sont les banques et les  professionnels qui retiennent et camouflent l’offre. D’autre part, créer un effet de richesse par le biais du housing suppose que les ménages puissent et aient envie de s’endetter. Leur situation financière ne leur permet pas. Les chiffres de défaillances sont encore considérables. La qualité des acheteurs actuels est déjà très mauvaise. Par ailleurs, le laxisme dans les attributions de crédit est tel qu’un acheteur sur cinq est déjà en difficulté. Nous rappelons également que les revenus réels des ménages sont en baisse continue, surtout si on tient compte des dépenses obligatoires. Il semblerait que ce soit un véritable « coûte que coûte » et que l’on se moque de la qualité des résultats obtenus à la faveur du fait que 95% de l’hypothécaire est nationalisé.

Cette tentative de compléter l’effet de richesse procurée par la hausse des valeurs mobilières par un regain de l’effet de richesse sur le logement est intéressante, mais sa crédibilité est limitée. Il va de soi que l’une des principales conséquences de cette orientation sera la dégradation accrue du portefeuille de la Banque Centrale.

La seconde remarque que nous voulons faire est que rien dans le texte du communiqué n’indique une quelconque préoccupation de la Banque Centrale américaine pour les conséquences de ses choix au plan international. La Fed donne totalement la priorité aux préoccupations domestiques. La Fed va détériorer son bilan, activer l’émission monétaire, maintenir des taux d’intérêt réels négatifs. Il est évident que tout ceci constitue la négation même des responsabilités que les Etats-Unis ont dans le cadre d’un système monétaire international dont ils sont les garants. Nous pensons qu’il s’agit là beaucoup plus que d’un « benign neglect », il s’agit d’une agression et d’une étape nouvelle dans la guerre des monnaies, la guerre des changes qui, pratiquement, a débuté en 2010.